Opinion
Civil Action 14-0827-C
04-29-2016
R. BIRD AND ASSOCIATES, INC. AND ALVAREZ BRACERO LP, LLC v. FERNANDO L. SUMAZA & CO., INC., JUNCOS LIMITED DIVIDEND PARTNERSHIP AND WILLIAM FRANCIS GALVIN, SECRETARY OF THE COMMONWEALTH OF MASSACHUSETTS [1]
MEMORANDUM OF DECISION AND ORDER ON PARTIES' CROSS-MOTIONS FOR SUMMARY JUDGMENT
Robert B. Gordon, Justice
This case arises out of a dispute over the identity of the general partner of the Juncos Limited Dividend Partnership (" Juncos Ltd."). R. Bird and Associates, Inc. (" R. Bird") and its intended successor, Alvarez Bracero LP. LLC (" Bracero LP" or " Bracero") (collectively " the plaintiffs"), assert that R. Bird is the original and rightful general partner. Fernando L. Sumaza & Co., Inc. (" Sumaza"), however, claims that R. Bird withdrew as general partner when its certificate of incorporation was cancelled and, as a result, Sumaza became the general partner of Juncos Ltd. Under this belief, Sumaza attempted to engage in business as the general partner of Juncos Ltd., and submitted to the federal government an application to be recognized as its general partner. The plaintiffs have brought claims for declaratory judgment and injunctive relief to declare that R. Bird is the lawful general partner of Juncos Ltd,, and to prevent Sumaza from acting as general partner of this entity. Sumaza has filed mirror-image counterclaims against the plaintiffs for declarator judgment and injunctive relief, seeking the diametrically opposite result.
The plaintiffs and Sumaza have now cross-moved for summary judgment. For the reasons which follow, the plaintiff's motion for summary judgment shall be ALLOWED, and Sumaza's motion for summary judgment shall be DENIED.
BACKGROUND
Juncos Ltd. was formed on April 9, 1985, pursuant to a certificate of limited partnership filed with the Massachusetts Secretary of State. R. Bird, a corporation organized under the laws of Puerto Rico, became the sole General Partner of Juncos Ltd. as of the date of its formation. Juncos Ltd.'s declared purpose is to provide housing in Juncos, Puerto Rico for low- and moderate-income families and displaced families, under the authority of the Farmers Home Administration pursuant to Section 515 Program of the National Housing Act, 12 U.S.C. § § 1701, et seq. The U.S. Department of Housing and Urban Development (" HUD") also assists Juncos Ltd. with subsidy payments under the Section 8 Program. The Office of Rural Development of the U.S. Department of Agriculture (" USDA/RD") now administers the Section 515 Program.
On July 31, 1985, Juncos Ltd. executed a Restated Certificate and Agreement of Limited Partnership of Juncos Limited Dividend Partnership (the " Restated Agreement" '). Under the Restated Agreement, Summit Company (" Summit") became a Class B Limited Partner, and ten other organizations became Class A Limited Partners of the Juncos Ltd. limited partnership. R. Bird remained the partnership's sole General Partner.
The Restated Agreement provides that the General Partner " shall not sell, assign, encumber or otherwise dispose of all or any part of its interest in the Partnership, ... except with the written consent of a Majority in Interest of the Limited Partners and the written consent of HUD and the Lender, if required." As concerns a corporate General Partner, Section 14.1.1(b) of the Restated Agreement provides that a disposal of its interest in Juncos Ltd. occurs in the event of, inter alia, " the dissolution, liquidation or combination, by merger or otherwise, of the corporation ...."
The Restated Agreement also grants Limited Partners the right to appoint one or more persons as General Partner by unanimous vote upon the disposal of a General Partner's interest. Prior to the appointment of a successor, the Class B Limited Partner " automatically and immediately upon the [dissolution of a corporate General Partner] ... shall be vested with all of the power, duties, authority and obligations hereunder ... to act as General Partner ... until a successor General Partner has been admitted to the Partnership ...."
Finally, the Restated Agreement prescribes the process for the giving of notice to all partners. Notice is effective " if given in writing and ... deemed to have been given only when delivered by personal service or deposited in the United States mail and sent by certified or registered mail, return receipt requested" and addressed to the partners' given addresses in Annex A or the Restated Agreement.
In 1983, 1984, 1988 and 1989, Juncos Ltd. executed loan agreements with the Farmers Home Administration and the USDA/RD, which contracts were subject to present and future regulations that might be administratively adopted from time to time. In audition to complying with the regulations, Juncos Ltd. was required to obtain the U.S. government's consent prior to changing the membership of Juncos Ltd. by either admitting or permitting the withdrawal of any partner, or by permitting any General Partner to maintain a less than five percent (5%) financial interest in the partnership. R. Bird signed each of the loan agreements as the General Partner for Juncos Ltd.
Juncos Ltd. filed three amendments to the Restated Agreement. Each amendment added Class A Limited Partner. None of these amendment added Bracero LP, which had no interest in Juncos Ltd. as a Limited Partner. At all relevant times, Felix Alvarez Bracero was the owner and president of Proper Management, the managing agent of Juncos Ltd.'s property. Mr. A.lvarez Bracero is also the owner and president of plaintiff Bracero LP.
On July 7, 2010, the owner and president of R. Bird, Ricardo Bird, died and left his ownership interest in R. Bird to his wife, Maria Bird, and their sons. Mrs. Bird acted as president of R. Bird as of the date of her husband's death, until she appointed Mr. Alvarez Bracero as president in 2014.
In December 2010, January 2011 and August 2013, Bracero LP acquired the interests of three Class A limited partners, including that of Paul Mantos (" Mantos").
The parties agree that Attorney Herman Cestero, acting on behalf of R. Bird, approved these transfers, and that the president of R. Bird likewise gave approval. Where the parties disagree concerns the defendants' suggestion that the transfers lacked approval because the plaintiffs failed to produce a corporate resolution approving them. The Court does not regard this dispute as material to resolution of the present motions. In any event, the approval of R. Bird, the General Partner and controlling interest-holder of Juncos Ltd., was sufficient. See Restated Agreement § 17.1(a) (permitting Limited Partners to sell interests by written instrument and in a form acceptable to counsel for the partnership, and with the General Partner's approval).
On November 1, 2011, Mrs. Bird (as president of R. Bird) and Mr. Alvarez Bracero (as president of Alvarez Bracero GP, LLP) (" Bracero GP") executed a document which they intended to serve as the Fourth Amendment of the Restated Agreement (" the Fourth Amendment"). The Fourth Amendment provided that R. Bird withdrew as General Partner, and transferred its general partnership interest to Bracero GP. Excepting only this change in General Partner, the Fourth Amendment ratified and confirmed the Restated Agreement, including its approval requirements for the transfer of a General Partner's partnership interest. The USDA/RD. however, never approved the Fourth Amendment's change.
Sumaza differentiates Bracero LP, the plaintiff who owns a limited partnership interest in Juncos Ltd., from Bracero GP, the entity to whom R. Bird attempted to transfer its interest. This is a distinction without difference, as Sumaza concedes that Mr. Alvarez Bracero is the owner and president of both entities, and each entity plays an independent role in the analysis of the instant motions.
On June 11, 2013, the Puerto Rico Secretary of State cancelled R. Bird's certificate of incorporation on account of the entity's failure to file annual reports. Following R. Bird's corporate cancellation, Sumaza contacted Summit, believing that it could become Juncos Ltd.'s General Partner by purchasing Summit's Class B Limited Partner interest. Sumaza's plan proceeded on the assumption that R. Bird's corporate cancellation triggered the dissolution clause of the Restated Agreement, see supra, and thereby resulted in Summit becoming the successor General Partner. In September 2013, Sumaza contracted with Summit to acquire its interest in Juncos Ltd.
Neither Summit nor Sumaza sought R. Bird's approval for this transfer. Sumaza did, however, transmit letters to the Limited Partners to provide them with notice of and an opportunity to oppose Sumaza's appointment as General Partner. Sumaza complied with all of the notice requirements under the Restated Agreement, including using certified mail, return receipt requested, and addressing the letters to the addresses referenced in the Restated Agreement. Two of the limited partners, Joseph Keefe and Michael Kelly, failed to return their notices of receipt, and the letters addressed to them were returned " unclaimed."
Sumaza alleges that Bracero LP received notice of Sumaza's request for approval to become General Partner via e-mail. Sumaza points to an October 17, 2013 e-mail between itself and former Class A Limited Partner Mantos, discussing the attached request for approval of Sumaza's appointment. Mantos was confused by Sumaza's request, however, because he believed that his interest had already been transferred to Bracero LP, and accordingly forwarded the e-mail to Bracero.
On November 1, 2013, R. Bird was corporately reinstated pursuant to Puerto Rico law. That same day, the Secretary of State of the Commonwealth of Puerto Rico issued a certificate of good standing for P. Bird.
On December 5, 2013, counsel for Juncos Ltd. and Sumaza, James Owen Casey (" Attorney Casey"), notified the USDA/RD by letter that Sumaza had assumed General Partner status in Juncos Ltd. by purchasing Summit's successor interest therein and by filing an Amendment to the Restated Agreement that named Sumaza the General Partner. In that letter, Attorney Casey was " requesting" that the USDA/RD recognize Sumaza as Juncos Ltd.'s General Partner. On April 10, 2014, however, the Housing Program Director of the USDA/RD informed Sumaza that USDA/RD was suspending its processing of Sumaza's request for approval as General Partner pending resolution of the instant litigation.
The documentation of the identity of Juncos Ltd.'s General Partner is conflicting, to say the least. The Internal Revenue Service Tax Forms 1065 and their corresponding Schedule K-1s from 2011 through 2014 identify R. Bird as Juncos Ltd.'s General Partner. Additionally, on November 28, 2014, R. Bird filed a USDA/RD Form 3560 bearing Felix Alvarez's signature as the " president" of R. Bird, In contrast, the Juncos Ltd. annual reports from 2009 through 2011, filed with the Massachusetts Secretary of State, identify Sumaza as the entity's General Partner. Sumaza's holding itself out as General Partner by filing annual reports that name itself as such represents the source of the present dispute.
Juncos Ltd. did not file these annual reports until October 11, 2013. In fact, the Massachusetts Secretary of State administratively dissolved Juncos Ltd. on June 30, 2013 for failure to file annual reports as required under Massachusetts partnership law. Although R. Bird did not file these reports in a timely manner, Sumaza took it upon itself to file them, which resulted in Juncos Ltd.'s reinstatement on October 18, 2013.
As a result of the confusion over Summit's transfer of its interest to Sumaza, the USDA/RD contacted R. Bird and Bracero by letter dated February 18, 2014. In that letter, the government asserted that Juncos Ltd. was in violation of USDA regulations, as well as its 1983 and 1989 loan agreements, for failure to obtain the USDA/RD's consent to Summit's purported transfer of its interest to Sumaza. The USDA/RD also noted that it was unable to locate records with the Massachusetts Secretary of State to support such transfer.
Presently before the Court are the plaintiffs' motion for summary judgment and Sumaza's cross-motion for summary judgment, each addressed to the single and dispositive issue of which entity is Juncos Ltd.'s true General Partner. Having heard oral argument on April 20, 2016, and considered the parties' submissions, the Court rules as follows.
DISCUSSION
STANDARD OF REVIEW
Summary judgment shall be granted when, after viewing the facts in the light most favorable to the nonmoving party, there are no genuine issues of material fact and the moving party demonstrates that it is entitled to judgment as a matter of a law. French King Realty. Inc. v. interstate Fire and Cas. Co., 79 Mass, App. Ct. 653, 659 (2011), citing Augat. Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117, 120 (1991). After the moving party establishes that there are no genuine triable issues, the nonmoving party " must set forth specific facts showing that there is a genuine issue for trial." Mass. R. Civ. F. 56(c). " Conclusory statements, general denials, and factual allegations not based on personal knowledge are insufficient to avoid summary judgment." Madsen v. Erwin, 395 Mass. 715, 721 (1985) (internal modifications omitted). Ultimately, " [i]t is the function of the judge, in ruling on the summary judgment motion, to look beyond the formal allegations of fact in the pleadings and to determine whether further exploration of the facts is necessary." Quincy Mut. Fire Ins. Co. v. Abernathy, 393 Mass. 81, 87 (1984).
" Where the language of a contract is clear and unambiguous, summary judgment is an appropriate vehicle for judicial interpretation because the court may interpret the meaning of the contract as a matter of law ...." Sullivan v. Southland Life Ins. Co., 67 Mass.App.Ct. 439, 440 (2006). Likewise, a matter of " [s]tatutory interpretation is a pure question of law" that is suitable for disposition by summary judgment. Rosnov v. Molloy, 460 Mass. 474, 476 (2011).
DECLARATORY JUDGMENT
By statute, " [t]he superior court ... may on appropriate proceedings make binding declarations of right, duty, status and other legal relations sought thereby ... in any case in which an actual controversy has arisen and is specifically set forth in the pleadings ...." G.L. c. 231A, § 1. Where there are no material issues of fact remaining, a court may rule on a motion for summary judgment seeking declarations of the parties' rights. See Merriam v. Demoulas Super Mkts., Inc., 464 Mass. 721, 726 (2013). When each party seeks declaratory relief, as here, there must be a declaration of their rights, " even when relief is denied to a party." Currier v. National Bd. of Med. Exam'rs, 462 Mass. 1, 22 (2012).
To show that a party is entitled to declaratory relief, the requesting party must first establish an actual controversy. G.L. c. 231 A, § 1. It well established that an actual controversy exists where there is " a real dispute caused by the assertion by one party of a legal relation, status or right in which he has a definite interest, and the denial of such assertion by another party also having a definite interest in the subject matter ...." Libertarian Ass'n of Mass. v. Secretary of the Commonwealth, 462 Mass. 538, 546-47 (2012) (internal quotation marks omitted). Although the declaratory judgment statute should be " liberally construed" to fulfill its purpose of eliminating uncertainties in respect of parties' rights and obligations, the statute " is not a vehicle for resolving abstract, hypothetical, or otherwise moot questions." Id. at 547.
In the present case, the parties do not dispute that an actual controversy exists as concerns the identity of Juncos Ltd.'s General Partner. To continue its existence, Juncos Ltd. must determine which party is the General Partner; so the question is neither abstract, hypothetical, nor otherwise moot. Moreover, inasmuch as each of the parties retains some form of partnership interest in Juncos Ltd., it is evident that each has a definite interest in this dispute. As a result, the only question before the Court is which entity in fact holds the lawful title of General Partner.
Sumaza asserts that the cancellation of R. Bird's certificate of incorporation effected its immediate withdrawal as General Partner and the corresponding succession to that status by Summit, whose interest Sumaza had purchased. Alternatively, Sumaza claims that R. Bird's assignment of its General Partner interest to Bracer() GP terminated R. Bird's General Partner status, thus allowing Sumaza to succeed as General Partner by vote of the Limited Partners. The plaintiffs, however, insist that R. Bird's cancellation and attempted assignment to Bracero GP did not result in the disposal of its General Partner interest. The plaintiffs additionally aver that, in all events, Sumaza failed to obtain she approvals from all of the Limited Partners and the USDA/RD which are required for it to succeed as General Partner. The Court reviews each contention in turn.
CANCELLATION OF R. BIRD'S CERTIFICATE OF INCORPORATION
The parties disagree over whether the Puerto Rico Secretary of State's cancellation of R. Bird's certificate of incorporation was effectively a dissolution of the entity under Section 14.1.1(b) of the Restated Agreement, which addresses the disposal of General Partner interests. Specifically, the parties dispute whether the Court should interpret the matter of cancellation under Puerto Rico law because R. Bird is incorporated under its laws, or under Massachusetts law because the Restated Agreement contains a choice of law provision designating Massachusetts law as governing all disputes arising from the contract. To the best of the undersigned's knowledge, no Massachusetts court has had occasion to rule on this precise issue (viz., whether to apply the law from the incorporating state or Massachusetts law when addressing the purported dissolution of a corporation that entered into a Massachusetts contract). The Court concludes, however, that, regardless of the law applied, R. Bird's corporate cancellation did not effect the entity's dissolution for purposes of the Restated Agreement.
Preliminarily, a foreign jurisdiction has the exclusive authority to determine when corporations incorporated under its laws have been dissolved. See Harrison v. NetCentric Corp., 433 Mass. 465, 471 (2001) (holding that " the State of incorporation dictates the choice of law regarding the internal affairs of a corporation"); Estate of Johnson v. Rose, 2007 WL 1832029 (Mass. Super. 2007) (Fecteau, J.) (same); A.D.M. Corp. v. Thomson, 707 F.2d 25, 28 (1st Cir. 1983)(" In our view, the [shareholder] corporations' by-laws must be read in light of the relevant law of the states in which the corporations were incorporated."). Thus, although Massachusetts has significant interest in interpreting Contracts under its jurisdiction, Puerto Rico has the stronger interest in determining the status of its own corporations. See Bushkin Assocs., Inc. v. Raytheon Co., 393 Mass. 622, 632 (1985).
Other jurisdictions follow the convention that the law of the incorporating state governs whether to disregard the corporate form. See, e.g., Jonas v. Estate of Leven, 116 F.Supp.3d 314, 330 (S.D.N.Y. 2015) (quoting Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995)) (" It is well-settled that New York's choice-of-law rules dictate that the law of the state of incorporation determines when the corporate form will be disregarded.") (internal quotation marks omitted); Regions Bank v. JP Realty Partners, Ltd., 912 F.Supp.2d 604, 614 (M.D. Tenn. 2012) (" As a general matter, the default rule is that the law of the state in which a corporate entity was incorporated or formed governs the issue of whether that company's corporate form should be ignored."); Select Creations v. Paliafito Am., 852 F.Supp. 740, 774 (E.D. Wis. 1994) (" A court applies the law of the state of incorporation of the controlled corporation to determine whether the corporate form should be disregarded.").
The Court looks to the specific meaning of " cancellation" under Puerto Rico law. See Rudow v. Fogel, 12 Mass.App.Ct. 430, 435-36 (1981) (courts necessarily begins this analysis by looking to the respective jurisdictions' laws). Pursuant to its Private Corporations statute, a corporation's failure to file annual reports for two consecutive years may result in the Secretary of State revoking the entity's certificate of incorporation. 14 L.P.R.A. § 3852. Puerto Rico courts, however, have expressly distinguished " cancellation" from dissolution of a corporation. See, e.g., In re Damian F. Plana Merced, 180 D.P.R. 179, 188-189 (P.R. 2005) (cancellation did not deprive corporation of standing to sue or be sued as a corporate entity); Mercado Berrí os v. De Residentes De La Urb. Rincón Español, Id. -12 (Puerto Rico App. Ct. 2012) (analogizing cancellation to suspension of corporation's powers, rights and privileges, whereas dissolution is akin to " legal death" of corporation). Cf. In re Serrano, 2016 Bankr. LEMS 325, *27 (Bankr. D.P.R. 2016) (holding president of cancelled corporation personally liable for debts because bankruptcy statutes did not allow officers or persons responsible for corporate finances to hide behind corporate shield). Highlighting the transitory nature of cancellation under Puerto Rican law, corporations may also be reinstated after a cancellation that was imposed for violations of Section 3546. 14 L.P.R.A. § 3762.
Massachusetts, by contrast, does not provide for corporate " cancellation" (or any comparable concept) in its Business Corporations laws. The Secretary of State may apply to revoke a certificate of incorporation or dissolve it completely, in which event the corporation must cease conducting business altogether. See G.L. c. 155, § 50A. See also Brattman v. Secretary of the Commonwealth, 421 Mass. 508, 512 (1995); Franklin Fair Ass'n v. Secretary of the Commonwealth, 347 Mass. 11.0, 117 (1964). Obviously, revocation or dissolution under Massachusetts law is a much more terminal result than the temporary suspension of corporate status produced by cancellation under Puerto Rico law.
In a more practical sense, however, the Court concludes that choice of law in this case presents something of a false conflict, because R. Bird's reinstatement ratified its authority as General Partner nunc pro tunc under both Puerto Rico and Massachusetts law. Compare 14 L.P.R.A. § 3762 (" The corporation after its revival ... be as exclusively liable for all contracts, acts, matters and things made, done or performed on its behalf ... prior to its revival, as if its certificate of incorporation had at all times remained in full force and effect") with G.L. c. 155, § 56 (upon revival, " corporation shall stand revived with the same powers, duties and obligations as if it had not been dissolved ...; all acts ..., which would have been legal and valid but for such dissolution, shall ... stand ratified and confirmed."). See also Devlin Constr. Corp. v. Driffwav S. Constr. Corp., 14 Mass.App.Ct. 954, 955 (1982) (holding that revived corporation had retroactive right to maintain action while it was still applying for reinstatement); Lockey v. Kanodia, 251 Mass.L.Rptr. 251, 255 (2001) (Van Gestel, J.) (" The Massachusetts revival statute is said to provide a lenient approach, re-establishing the status quo ante for dissolutions that come about from inadvertent failures to file annual reports."). Consequently, R. Bird's reinstatement revived its corporate existence retroactively to the time of its corporate cancellation, and any suggestion that it was dissolved during that period is inconsistent with Massachusetts and Puerto Rico law alike.
Counsel for Sumaza attempts to distinguish Devlin Constr. Corp. and Lockey from the instant case on factual grounds, to no avail. The Court references and relies upon these cases only for the proposition that reinstated corporations are retroactively recognized under Massachusetts law. Sumaza's fact-based arguments posit distinctions without a difference to this legal proposition.
Notwithstanding its application of Puerto Rico law, the Court will in all events review Sumaza's reliance on Massachusetts' version of the Uniform Partnership Act (" MPA"), G.L. c. 109, § 23, " Cessation of general partner status." Citing to that provision of the law, Sumaza argues that R. Bird ceased to be Juncos Ltd.'s General Partner upon the cancellation of its certificate of incorporation. Section 23 provides, in relevant part: " Except as approved by the specific written consent of all partners at the time, a person ceases to be a general partner of a limited partnership upon the happening of ... (9) in the case of a general partner that is a corporation, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter ...." G.L. c. 109, § 23(9). Sumaza argues that R. Bird's corporate cancellation constituted a revocation of its charter which thereby effected a cessation of its General Partner status. Sumaza's reliance on the MPA is misplaced. As the MPA itself expressly provides, the application of this statute is limited to situations where the partners have not entered into a written agreement. Id.; see also BPR Group Ltd. P'ship v. Bendetson, 453 Mass. 853, 863 (2009) (" The UPA applies only when there is either no partnership agreement governing the partnership's affairs, the agreement is silent on a particular point, or the agreement contains provisions contrary to law.") (internal quotations omitted). As the parties have executed a written partnership agreement, the terms of the Restated Agreement regarding dissolution of a corporate general partner (rather than the default provisions of the MPA) control.
At oral argument, Sumaza asserted that § 23(9) is applicable to partnerships regardless of whether a partnership agreement exists, because this section lacks the language " Unless otherwise provided in writing in the partnership agreement" (as other subsections of § 23 recite). The Court is unpersuaded. In light of the preamble to § 23, expressly limiting the statute's applicability to situations where no written partnership agreement exists (viz., " Except as approved by the specific written consent of all partners at the time ...."), the Legislature clearly intended § 23 to create default rules that operate in the absence of a written partnership agreement that addresses a particular subject matter. See Olmstead v. Department of Telcomms, & Cable, 466 Mass. 582, 588 (2013) (" A fundamental tenet of statutory interpretation is that statutory language should be given effect consistent with its plain meaning and in light of the aim of the Legislature unless to do so would achieve an illogical result.") (emphasis added).
Many jurisdictions have similarly construed the Uniform Partnership Act. See, e.g., In re Popkin & Stern, 340 F.3d 709, 714 (8th Cir. 2003) (partnership agreement's dissolution teams supplanted Missouri UPA); Dental Health Assoc. v. Zangeneh, 825 N.Y.S.2d 505, 507 (N.Y. 2006) (partnership not dissolved under statute by giving notice of dissolution to other partner where noticing other partner was insufficient to dissolve partnership under terms of partnership agreement); Hunter v. Straube, 273 Or. 720, 726-730 (Or. 1975) (filing lawsuit dissolved partnership in contravention of partnership agreement specifying circumstances under which partnership could be dissolved). See also Cominos v. Kalkanes, 37 Wash.2d 843, 848 (Wash. 1951) (" It is always open to parties to provide in any agreement they may make, how and under what circumstances, their business relationship may be terminated").
For these reasons, R. Bird's corporate cancellation did not amount to a dissolution for the purposes of disposal of its General Partner interest under the Restated Agreement. Alternatively, even if dissolution could be deemed to have occurred in these circumstances, R. Bird's subsequent reinstatement to certificated corporate status reversed any such disposition of its General Partner interest nunc pro tunc.
Sumaza also claims that the Restated Agreement provides that any disposition of a general partnership interest results in the automatic and immediate succession to General Partner by the Class B Limited Partner under Section 14.2(b)(2). In light of such succession, Sumaza argues, R. Bird could not revive a status of which it had already been divested. As discussed supra, R. Bird did not dispose of its partnership interest, because it did not in fact dissolve. Even assuming arguendo that R. Bird was dissolved, Sumaza's asserted interpretation flouts the clear policy of the statute's revival provision, and thus cannot be credited. See Warfield v. Beth Israel Deaconess Med. Ctr., Inc., 454 Mass. 390, 397 (2009) (" Our State law principles of contract interpretation make clear that considerations of public policy play an important role in the interpretation and enforcement of contracts.").
R. BIRD'S ATTEMPT TO TRANSFER INTEREST TO BRACERO GP
Sumaza alternatively argues that the Fourth Amendment transferring R. Bird's General Partner interest to Bracero GP terminated R. Bird's General Partner status, and, by operation of the Restated Agreement, resulted in the succession of its interest to the Class B Limited Partner, Summit. The plaintiffs counter that the USDA/RD never approved such a change in General Partner as was required pursuant to the federal loan agreements and regulations, see 7 C.F.R. § § 3560.1, 3560.405. Thus, the parties dispute whether USDA/RD approval was a condition precedent to the operation of the Fourth Amendment. The Court concludes that such approval was necessary, and that R. Bird's transfer of its interest thus did not effect a disposition of its General Partner interest.
As a preliminary matter, the Court must first determine whether the condition precedent of consent existed in the Restated Agreement. " When construing a contract, a court looks to the parties' intent to determine whether they have created a condition precedent." Massachusetts Mun. Wholesale Elec. Co. v. Danvers, 411 Mass. 39, 45 (1991). In making such determination, courts must " consider[] the words used by the parties, the agreement taken as a whole, and surrounding facts and circumstances." Id. at 45-46. Here, the entire raison d'etre Juncos Ltd.'s business was the USDA/RD's Section 515 Program, more particularly the loans from the USDA/RD to fund the entity's housing developments. As a result, the loan agreements became an integral set of rules with which Juncos Ltd. was required to comply. Under these circumstances, it is clear that Juncos Ltd. and the USDA/RD intended to create a condition precedent to the transfer of any controlling interest in the partnership.
The language of the loan agreements themselves reinforces the conclusion that USDA/RD consent was required before a transfer could be deemed to have occurred. Specifically, the loan agreements provide that Juncos Ltd. is required to obtain consent prior to changing its membership by either admitting or permitting the withdrawal of any partner. In addition, the agreements provide that they are subject to present and future regulations. Federal regulations provide, in relevant part:
Borrowers must notify the Agency prior to the implementation of any changes in a borrower entity's organizational structure. The Agency must give its consent prior to the implementation of changes in a borrower entity's controlling interest.
If the controlling interest change involves a transfer of interest to an entity not previously holding an ownership interest in the borrower entity, the request for consent must include a written certification, executed by the party receiving the ownership interest ....7 C.F.R. § § 3560.405(b)(1), (2). At no point in this case did the USDA/RD consent to the transfer of R. Bird's interest to Bracero GP. Therefore, any such organizational change would be in violation of the USDA/RD loan agreements, whether under the prior consent provision or under the federal regulatory provision.
Without consent of the USDA/RD, R. Bird's attempted transfer of its interest never occurred; nor did any disposition of its interest such as would have triggered succession. See Massachusetts Mun. Wholesale Elec. co., 411 Mass. at 45 (" If the condition is not fulfilled, the contract, or the obligations attached to the condition, may not be enforced."). Further to the above, and for the same reason, Sumaza is not entitled to be credited with the contested General Partner interest by virtue of having purchased the interest of Summit, the successor General Partner. R. Bird's failed attempt to step down as Juncos Ltd.'s General Partner had no effect, and R. Bird simply retained its then extant General Partner status.
Sumaza urges the Court to rely upon Attorney Casey's opinion that R. Bird withdrew as General Partner upon its cancellation, or, alternatively, upon executing the Fourth Amendment. The plaintiffs have moved to strike Attorney Casey's affidavit, deposition testimony, and opinion attached to Sumaza's letter to the USDA/RD requesting appointment as General Partner, arguing that such evidence represent improper lay opinion as to matters of law and/or other subjects requiring cognizable expertise. As it is not necessary to decide these issues for purposes of the present motions, the Court declines to do so. The undersigned, however, observes that Attorney Casey's undesignated expert opinions on ultimate issues in this case may very well be considered improper testimony. See Matoon v. Pittsfield, 56 Mass.App.Ct. 124, 137 (2002) (" Lay and expert witnesses are precluded from giving an opinion, for the most part, that involves a conclusion of law or in regard to a mixed question of fact and law.").
APPROVAL OF SUMAZA AS GENERAL PARTNER
The plaintiffs argue that even if Sumaza had properly obtained Summit's successor interest and was thereby in position to become the permanent General Partner, Sumaza failed to obtain unanimous consent from the Limited Partners. More specifically, the plaintiffs assert that Sumaza failed to obtain consent from the USDA/RD, Bracero LP and the two Limited Partners whose letters of consent were returned " unclaimed." Sumaza counters that it properly gave notice of its ascension to General Partner pursuant to the Restated Agreement, and that neither Bracero LP nor the USDA/RD was entitled to notice. Sumaza posits, further, that even if Bracero LP was entitled to notice, it was properly notified of the request for approval of its appointment via e-mail.
The Restated Agreement provides that notice shall 'PP proper if written and shall be deemed delivered when deposited in the U.S. mail and sent by certified or registered mail, return receipt requested, and addressed to the partners' addresses listed in Annex A. There is no dispute that Sumaza properly addressed the letters. What the parties do dispute is whether proper notice required the Limited Partners to have returned a notice of receipt, or whether the act of sending the letter alone was sufficient.
Generally, the purpose of notice is to ensure that a party to the contract receives actual notice in a timely fashion. See New Eng. Carpenters Cent. Collection Agency v. Labonte Drywall Co., 795 F.3d 271, 279-80 (1st Cir. 2015); Redondo Constr. Corp. v. P.R. Highway & Transp. Auth. (In re Redondo Constr. Corp.), 678 F.3d 115, 123 (1st Cir. 2012) (" strict conformity with a contract's written notice provision is not required as long as the counterparty receives substantially the same information through timely actual notice and suffers no prejudice from the non-conformity").
That being said, parties may by contract agree to whatever provisions they deem necessary to reflect their understanding. See Beacon Hill Civic Ass'n v. Ristorante Toscano, 422 Mass. 318, 320 (1996) (-the general rule of our law is freedom of contract .... That principle rests on the premise that it is in the public interest to accord individuals broad powers to order their affairs through legally enforceable agreements, ") (internal quotation marks omitted); G.M. Abbatial Ins. Agency v. Commerce Ins. Co., 41 Mass.App.Ct. 274, 277 (1996) (" Every phrase and clause must be presumed to have been designedly employed, and must be given meaning and effect ...."). In light of Massachusetts' deference to the enforcement of private contracts, Sumaza fulfilled his obligation to give notice to the Limited Partners by depositing the letters in the U.S. mail in accordance with the prescribed requirements in the. Restated Agreement.
The related issue presented is whether notice to Bracero LP was necessary and sufficient. By the time that Sumaza requested approval to become General Partner, Bracero LP had already purchased several Limited Partners' shares. It was, therefore, entitled to proper notice and a vote as a Limited Partner pursuant to the Restated Agreement. The failed attempt to acquire R. Bird's General Partner interest is immaterial to whether Bracero was due notice, as Bracero was already entitled to that right by virtue of being a Limited Partner. As to whether Bracero's notice was adequate, the Court concludes that Sumaza's e-mail to Mantos that was later forwarded to Bracero with an attached notice for consent is entirely inconsistent with the contract's required notice provisions. As a result, even if Sumaza had standing to become General Partner (which the Court has already found it did not), Sumaza's failure to obtain Bracero's consent independently defeated any attempt to succeed R. Bird as General Partner. Cf. JRY Corp. v. Le Roux, 18 Mass. App, Ct. 153, 156-59 (1984) (unilateral amendment to partnership agreement deemed invalid when partner failed to comply with provisions of agreement requiring counsel opinion and unanimous vote before amending rights under the agreement).
The plaintiffs further contend that Sumaza failed to obtain USDA/RD approval to become General Partner. Sumaza does not deny that it did not seek such approval, but answers that it was never required to obtain USDA/RD's approval for the same reasons that the Fourth Amendment was effective without such approval. As discussed ante, the USDA/RD loan agreements and regulations require the agency's prior consent before transferring a General Partner's interest. Sumaza thus did not acquire such an interest, because it never sought and secured required USDA/RD approval.
Given that neither R. Bird's corporate cancellation nor its attempted transfer to Bracero GP amounted to a disposal of its general partner interest, and given further that Sumaza's attempt to ascend to the status of General Partner was never approved by federal authorities in the manner required, R. Bird remained Juncos Ltd.'s General Partner as a matter of law. As a final point, the Court observes that, in addition to being the result that most naturally accords with the governing documents and statutes, preserving R. Bird's status as General Partner is the outcome most consonant with fundamental fairness. R. Bird has, for some three decades and without interruption, been the functional General Partner of the Juncos limited partnership. It alone has carried on the business of the partnership (viz., filing tax returns on behalf of Juncos Ltd., dealing with the USDA/RD, and the like), and it is the entity unqualifiedly recognized as the General Partner by its government counter-parties and regulators. To be sure, R. Bird committed lapses in respecting the corporate formalities of its role as General Partner, and these lapses needed to be (and were) rectified. But to recognize Sumaza as R. Bird's effective successor on this basis would reward opportunistic play in a game of " Gotcha, " and simultaneously work a severe forfeiture on an entity and its owners for no more than technical missteps. It is well established that such inequity is highly disfavored in our jurisprudence. See Peabody v. Flint, 88 Mass. 52, 57 (1863) (" [E]quity does not suffer technicalities to stand in its way, but seizes upon the substance of the case, and holds all parties to their just responsibility ....").
For all of these reasons, the plaintiffs are entitled to summary judgment in respect to their claim for declaratory relief, and the defendants' cross-motion for summary judgment must be denied.
The parties have also cross-moved for summary judgment on their claims for injunctive relief Although the plaintiffs have succeeded on their flagship claim, the Complaint additionally requested injunctive relief limited to the period of time lasting until the rights of the parties are established. Inasmuch as the Court has determined that the plaintiffs are entitled to summary judgment on their claim for declaratory relief, their companion request to enjoin Sumaza from acting as General Partner is now moot. Sumaza's claim for injunctive relief must similarly be dismissed. See LightLab Imaging, Inc. v. Axsun Technologies. Inc., 469 Mass. 181, 194 (2014) (" A permanent injunction should not be granted to prohibit acts that there is no reasonable basis to fear will occur.").
CONCLUSION AND ORDER
In accordance with the foregoing, the plaintiffs' Motion Summary Judgment (Dkt. #23) is ALLOWED, and defendant Fernando L. Sumaza & Co., Inc.'s Motion for Summary Judgment (Dkt. #24) is DENIED.
JUDGMENT SHALL ENTER in favor of plaintiffs R. Bird and Associates, Inc. and Alvarez Bracero LP, LLC on Count I, insofar as it seeks a declaratory judgment, and Count I shall be dismissed to the extent that it seeks injunctive relief. All counterclaims shall be, and hereby are, DISMISSED.
On the claims for declaratory relief, it is hereby DECLARED as follows:
Pursuant to the terms of the Restated Partnership Agreement, as amended from time to time, R. Bird & Associates, Inc. is adjudged to be the General Partner of Juncos Limited Dividend Partnership.
SO ORDERED.
SUMMARY JUDGMENT MASS. R. CIV. P. 56
This action came on to be heard before the Court, Robert G. Gordon, Justice, presiding, upon motion of the Plaintiff, R. BIRD AND ASSOSIATES, INC. AND ALVAREZ BRACERO LP, LLC, and cross-motion of the Defendant, FERNANDO L. SUMAZA & CO., INC., for Summary Judgment, pursuant to Mass. R. Civ. P. 56. The parties having been heard, and all relevant submissions having been considered by the Court, It is ORDERED and ADJUDGED:
That for reasons set forth in the Court's Memorandum of Decision, dated April 29, 2016, the Plaintiff's Motion for Summary Judgment is ALLOWED, and defendant Fernando L Sumaza & Co. Inc.'s Motion for Summary Judgment is DENIED. JUDGEMENT SHALL ENTER in favor of Plaintiffs R. Bird and Associates, Inc. and Alvarez Bracero LP, LLC, on Count 1, insofar as it seeks declaratory judgment, and Count 1 shall be dismissed insofar as it seeks injunctive relief. All counterclaims shall be, and hereby are, DISMISSED. On the claims for declaratory relief, it is hereby DECLARED as follows: Pursuant to the terms of the Restated Partnership Agreement, as amended from time to time, R. Bird & Associates, Inc., is adjudged to be the General Partner of Juncos Limited Dividend Partnership.
SO ORDERED